How To Budget With Irregular Income

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Budgeting personal finances is one of the most important elements to establishing and maintaining independence. Financial security involves knowing income and expenses and distributing the money accordingly. In addition to monthly expenses, people want to allot money for savings and build an emergency fund. A regular income will go a long way to making this plan run much more smoothly. Paydays for some people do not arrive on a regular schedule, and those people need a plan to spread out their irregular income evenly.


Irregular Income Professionals
Workers who earn commission can have huge swings in earnings from one paycheck to the next. One month can reap a big paycheck while the next month brings little or nothing. Restaurant servers and bartenders work on tips and learn very quickly that certain nights of the week yield a higher profit than others. Freelance workers also have large swings in income, and income is not always guaranteed. Business owners are another group of people who know that swings in the economy can directly affect the success of their business. Some business owners work from home while others have overhead expenses and employees to pay each month.

Know The Necessities
Learning how to manage spending is the first key to turning an irregular income into a steady income. The first step is to prioritize the expenses. The very first thing to be paid should always be the absolute necessities. This usually includes housing costs, utilities, and grocery costs. All of these can vary from one household to the next so calculating personal bills is important. A family of four will obviously have higher grocery and utility costs than a single person living alone.

Important Expenses
After the bare essentials, priority expenses need to be paid. Priority expenses are those bills or items that may not be an absolute necessity, but they are fairly important to productivity. People who work from home will likely place their internet bill higher on the list than someone who only uses their internet for entertainment.

Savings And Luxury Spending
After the priority bills come savings and luxury spending. The reasonable and sensible thing to do is to place the savings higher on the list than the luxury spending. In the case of a complete loss of income, the savings will be the only source of money for survival. How much money to contribute to the savings account is a personal decision that will vary from one person to the next?

Spend Wisely
The second most important piece of advice is to regulate spending evenly. There will be times that a large paycheck arrives. The temptation to splurge will be strong, but anyone on an irregular income should try to resist. Splurging during a high period will lead to living like a pauper during a low period.

Create A Regular Income
Since irregular incomes can be hard to live off of, turning it into a steady paycheck is the best option. The best system to do this is to have two different checking accounts. The first account should be the collection account. This is where all earned money gets deposited. The second account will be a personal account that all expenses are paid out of. The best method is to set up regular transfers from the first account to the second account. How often the transfer occur can vary depending on personal preference. It can be a monthly, bi-weekly, or weekly transfer.

Learning The Numbers
The big unknown for most people is how much to transfer into their spending account. Calculate the necessities and priority expenses. These two categories should be covered by the regular transfers each month. Then a person living on an irregular income can contribute to money into the savings account, and if they are lucky, they can give themselves an allowance for luxury spending.

Living off of an irregular income successfully is definitely possible, but it needs to be managed carefully. If not handled carefully, it can have disastrous results.

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